Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Question
Chapter 9, Problem 44P
a.
To determine
Explain four areas where CPAs may provide judgement in planning a statistical test of controls.
b.
To determine
Explain the steps to be taken by the auditor in case of unacceptable deviation rate.
c.
To determine
Suggest four sampling techniques for selecting the sample size from the population.
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(Appendix G.B) To determine the sample size for a classical variables sampling application,an audit team should consider the tolerable misstatement, risk of incorrect acceptance, riskof incorrect rejection, population size, population variability, anda. Expected misstatement in the account.b. Overall materiality for the financial statements taken as a whole.c. Risk of assessing control risk too low.d. Risk of assessing control risk too high
Non-statistical sampling is commonly used in audit practice. Describe each of the four items required in a non-statistical audit test. Discuss the reasons why you would use, or not use, this type of testing for account transactions whose values range from very material to immaterial amounts. Describe why you believe non-statistical sampling is best for material vs immaterial amount testing, or vice versa.
Attribute sampling enables the auditor to directly assess whether a rule is operating successfully or not, sampling is more reliable for assessing controls. This is crucial in circumstances where data accuracy or completeness are essential, such as when a credit-check control is used for consumer orders. The focus is on estimating the overall monetary value of a population, therefore monetary-unit sampling is more suitable for verifying the accuracy of financial statements or specific account balances. It is crucial to remember that the exact audit objectives and the type of data being checked will determine the sampling technique that is used. Do you believe monteray unit sampling can do the same thing?
Chapter 9 Solutions
Principles Of Auditing & Other Assurance Services
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Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - What is a dual-purpose test?Ch. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - What would be the difference between an attributes...Ch. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 21RQCh. 9 - Prob. 22RQCh. 9 - Prob. 23RQCh. 9 - Prob. 24RQCh. 9 - Prob. 25RQCh. 9 - Prob. 26RQCh. 9 - Prob. 27RQCh. 9 - Prob. 28RQCh. 9 - Prob. 29QRACh. 9 - Prob. 30QRACh. 9 - Prob. 31QRACh. 9 - Prob. 32QRACh. 9 - Prob. 33QRACh. 9 - Prob. 34QRACh. 9 - Prob. 35QRACh. 9 - Prob. 36QRACh. 9 - Prob. 37AOQCh. 9 - Prob. 37BOQCh. 9 - Prob. 37COQCh. 9 - Prob. 37DOQCh. 9 - Prob. 37EOQCh. 9 - Prob. 37FOQCh. 9 - Prob. 37GOQCh. 9 - Prob. 37HOQCh. 9 - Prob. 37IOQCh. 9 - Prob. 37JOQCh. 9 - Prob. 37KOQCh. 9 - Prob. 37LOQCh. 9 - Prob. 38OQCh. 9 - Prob. 39OQCh. 9 - For each term in the first column below, identify...Ch. 9 - Prob. 41OQCh. 9 - Smith, Inc. Rachel Robertson wishes to use...Ch. 9 - Prob. 43OQCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - In the audit of Potomac Mills, the auditors wish...Ch. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52ITC
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- In an audit sampling application, an auditora. Performs procedures on all items in a balance and makes a conclusion about the entirebalance.b. Performs procedures on less than 100 percent of the items in a balance and formulates aconclusion about the entire balance.c. Performs procedures on less than 100 percent of the items in a class of transactions tobecome familiar with the client’s accounting system.d. Performs analytical procedures on the client’s unaudited financial statements when planning the audit.arrow_forwards1: The only way to know with certainty whether a sample Is representative is to subsequently audit the entire population. s2: One way to control sampling risk is to increase the sample size. s3: Sampling risk results from the auditor's failure to recognize exceptions in transaction data. A. all statements are true b. all statements are false c. s1 and s2 are true d. s1 and s3 are truearrow_forwards1: A stratified sample consist of sampling units selected without conscious bias. s2: All auditing procedures involve audit sampling. s3: A deviation from prescribed control procedures does not necessarily indicate the presence of monetary error A. all statements are true b. all statements are false c. s1 and s2 are true d. s1 and s3 are truearrow_forward
- When the auditor uses monetary unit statistical sampling to examine the totaldollar value of invoices, each invoice(1) has an equal probability of being selected.(2) can be represented by no more than one monetary unit.(3) has an unknown probability of being selected.(4) has a probability proportional to its dollar value of being selected.arrow_forwardAn auditor had decided to use probability-proportional-to-size (PPS) sampling, also called dollar-unit or cumulative monetary unit (CMU) sampling, in the audit of the client’s accounts receivable balance. The auditor discovered 3 misstatements while doing their testing. Complete the spreadsheet below and calculate the total projected misstatement.arrow_forwardOn Andit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. When an auditor uses sampling. an element of uncertainty enters into the auditor's conclusions. Required: a. Explain the auditor's justification for accepting the uncertainties that are inherent in the sampling process. b. Discuss the uncertainties that collectively embody the concept of audit risk. c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls in terms of Type I and Type II errors. Accessibility: Investigate Stylesarrow_forward
- Audit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. when an auditor uses sampling, an element of uncertainty enters into the auditor’s conclusions.Required:a. Explain the auditor’s justification for accepting the uncertainties that are inherent in the sampling process.b. Discuss the uncertainties that collectively embody the concept of audit risk.c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls.arrow_forwardTRUE OR FALSE When evaluating the results of specific items selected for testing, its effects must be projected to the whole population. Audit sampling refers to the application of audit procedures to less than 100% of the items in account balance or class of transactions for the purpose of evaluating some of its characteristics. In performing external confirmations, the management prepares the requests and receives and replies for communication to the auditor. One of the ways to gain knowledge of any lirigations and claims is through an examination of professional or legal expenses and related source documents. Related parties generally unreliable in nature which leads to the auditor performing procedures to examine transactions with them.arrow_forwardSelect the necessary words from the list of possibilities to complete the following statements. 1. 2. 7. Inherent in the use of sampling is representative of the population. 9. When the auditors estimate sampling risk using professional judgment rather than by using the laws of probability, they are said to be using. sampling. an item from the population may be selected two or more times for inclusion in the When using sample. The term 3. 4. 5. In performing tests of controls, the auditors are primarily concerned with the risk of assessing 6. To use attributes sampling tables, the auditors must stipulate the desired risk of assessing control risk too low, the expected deviation rate in the population, and the desired Statements risk which is the possibility of selecting a sample that i not refers to the process of dividing a population into relatively homogeneous subgroups. sampling is usually used in situations in which the auditors expect a very low rate of occurrence of some…arrow_forward
- In performing a test of controls for ABC, Inc., the auditor wants to know whether Sales order are approved before goods are picked, packed and shipped to customers. The CPAs has stipulated a Tolerable Deviation Rate (TDR) of 8 percent with a Risk of Assessing Control Risk too low of 5 percent. The CPA also anticipates a deviation rate of 2%. What type of sampling plan should the auditor use for this test? Attribute sampling Monetary samplingarrow_forwardTolerable error, is the maximum monetary error that the auditor is prepared to accept in the population and still conclude that audit objective has been achieved, is directly related to A.Sample size BAudit risk C.Materiality D.Expected errorarrow_forwardWhich of the following statements about attribute sampling is correct? A. Larger transactions have a higher chance of being selected into the sample than smaller transactions. B. The risk of over-reliance does not affect the sample size. C. Attribute sampling is often used in the test of controls. D. The haphazard selection method is often used for attribute sampling. E. If the estimated population deviation rate is higher than the tolerable deviation rate, auditors conclude the internal control is effective.arrow_forward
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